Cost-benefit of second Bass Strait interconnector in question

The state government has played down opposition claims that a feasibility report of a second Bass Strait interconnector was a failure despite uncertainty as to whether the infrastructure would benefit the state.

The report, by energy expert John Tamblyn, concluded that rapid transformation within the national energy market and ongoing policy change did not create the right environment for investment in long-term investments like a new cable.

The report estimated that the 293-kilometre interconnector would take eight years to develop at a $1.1 billion cost and $16.7 million each year after in operational and maintenance costs.

Analysis by the Australian Energy Market Operator and firm Ernst and Young showed that there would be positive benefits if a South Australian interconnector with the eastern states was built before the Bass Strait interconnector, or if there was a significant reduction in future electricity demand in Tasmania.

Ernst and Young’s modelling showed potential for higher revenues from a merchant interconnector – that is, from wholesale price revenue – rather than a regulated asset paid for by customers.

But it said reliance on merchant revenues was risky due to market volatility.

The report projected that a second interconnector would generate $361 million over 20 years until 2035.

This included $85 million in savings due to hydro-electricity and wind energy, replacing higher-cost gas generation nationally and deferring the need for further gas generation investments

But the cost of the interconnector over that time would amount to $341 million.

“As the resulting net market benefits under the neutral demand scenario were just $20 million, further analysis would be required to justify investment in the long-term interests of electricity consumers,” the report said.

The Australian Renewable Energy Agency has provided $2.5 million to the state for another feasibility study on how to maximise Tasmania’s renewable energy potential and future development.

Premier Will Hodgman said that the new feasibility study was an “appropriate way of going about things.”

He said this changed the context of the former feasibility report and strengthened case for second interconnector.

"This is long-term, visionary nation-building and catapults Tasmania's place in the National Energy Market," Mr Hodgman said.

He said all funding options for a second interconnector should be on the table.

But Labor’s energy spokesman Scott Bacon said dismissed the government’s approach as failed. “The government has spent a million dollars on a report it wants to now bury,” he said.